Form revised: December 14, 2010

 

FISCAL NOTE FOR NON-CAPITAL PROJECTS

 

Department:

Contact Person/Phone:

CBO Analyst/Phone:

Parks and Recreations

Nathan Torgelson/ 684-0343

Amy Williams/ 233-2651

 

Legislation Title:

AN ORDINANCE authorizing the Superintendent of Parks and Recreation to execute an Amended and Restated Lease between the City of Seattle and Building 11 Investors LLC for the renovation and use of Building 11 at Warren G. Magnuson Park.

 

 

Summary of the Legislation:

The proposed legislation authorizes the Superintendent of the Department of Parks and Recreation (DPR) to amend and restate the original agreement between the City of Seattle and Building 11 LLC Investors to renovate, maintain, and manage Building 11 in Magnuson Park.  Amending and restating the lease is necessary for the project to move forward.

 

Background:

On September 29, 2008, the City Council authorized the City to enter into a lease agreement with Building 11 LLC to renovate, then manage and maintain Building 11 in Magnuson Park.  The lease was effective February 24, 2009.  Parks and Building 11 LLC have negotiated certain changes and alterations to the lease.  The lease amendment guarantees at least 5,000 square feet of artist studio space for the life of the term, and guarantees at least 16,890 square feet of primary park and recreation uses for the life of the term, of which at least 5,000 square feet must be water related.  Also, at the request of some of the future tenants in the building, the lease requires the City to assume some of the existing leases through Non-Disturbance Agreements in the event that Building 11 LLC defaults.  Additionally the initial term is extended, but the sum of the initial terms and extensions remain the same.  The change in term allows Bldg 11 LLC to apply for federal Historic Tax Credits and gives the City at least an additional $1 million in rent over the life of the term.  The amendment also adds two play areas and a deck area to the Premises, which will be non-exclusive, and which are regulatory requirements for a day care center.

 

 

____    This legislation does not have any financial implications.

 

_X__   This legislation has financial implications.

 

Appropriations:  N/A

 

Fund Name and Number

Department

Budget Control Level*

2011

Appropriation

2012 Anticipated Appropriation

 

 

 

 

 

TOTAL

N/A

N/A

N/A

N/A

 

Appropriations Notes:  N/A

 

 

Anticipated Revenue/Reimbursement: Resulting from this Legislation:

 

Fund Name and Number

Department

Revenue Source

2011

Revenue

2012

Revenue

 

 

 

 

 

TOTAL

N/A

N/A

$5,501

$5,898

 

Revenue/Reimbursement Notes:

Revenue from Building 11 Investors LLC will begin when a Certificate of Occupancy is issued for the first subtenant, which is expected sometime in late 2011.  Base rent for the building is $235,120 per annum plus additional rent equal to 10% of subtenant rent, which is comparable to the current amount of annual rent generated by the facility.  Building 11 Investors LLC is allowed to offset 75% of the base rent during the first five years for eligible capital development expenditures, and up to 67% thereafter during the remainder of the term.  An additional 23% of the base rent may be reduced in the form of public benefit offsets.

 

Because of the tax credits which are anticipated as part of the lease amendment, the City will begin getting full rent earlier than without the tax credits.  The proposed amendment reduces the initial qualified costs in the construction offset by 75% of the value of the tax credit.  The revenue impacts to the City will occur in the years when the construction offset has finally been consumed, and there are no more offset dollars available to subsidize the annual rent payments.  With a capital account of over $9 million and an annual rent due to the City starting at $278,000, it takes about 30 years to offset the construction costs against rent, and the subsidy is projected to be fully exhausted in 2041.  The City gets additional rent equivalent to 75% of the tax credit in the first two or three years after the construction offset is extinguished.  In year 30 or 31, rent is expected to be over $400,000 annually, depending on the amount of tax credits.  Building 11 Investors LLC estimates that the tax credit will be either $1.5 or $1.8 million, which will result in an additional $1.125 or $1.35 million in revenue for the City over the life of the lease.

 

Total Regular Positions Created, Modified, or Abrogated through this Legislation, Including FTE Impact:  N/A

 

Position Title and Department

Position # for Existing Positions

Fund Name & #

PT/FT

2011

Positions

2011

FTE

2012 Positions*

2012 FTE*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

N/A

N/A

N/A

N/A

N/A

N/A

N/A

 

Position Notes: There are no position impacts as a result of this legislation.

 

 

Do positions sunset in the future?  N/A

 

 

Spending/Cash Flow: N/A

 

Fund Name & #

Department

Budget Control Level*

2011

Expenditures

2012 Anticipated Expenditures

 

 

 

 

 

TOTAL

N/A

N/A

N/A

N/A

 

Spending/Cash Flow Notes:

 

What is the financial cost of not implementing the legislation?

If the legislation is not implemented the existing lease will still be in effect.  If the existing lease was terminated by the Lessee or by the City, the City would need to find another fund source to do the major renovation required to bring this building up to code.  The City loses the opportunity to secure a significant private capital investment in the facility and a long-term management structure that ensures continued programming of the facility.  By not implementing the legislation the City would continue to collect rent from existing tenants.

 

Does this legislation affect any departments besides the originating department?  No

 

What are the possible alternatives to the legislation that could achieve the same or similar objectives?

DPR engaged in a significant effort to identify an entity with solid financial viability that met the Parks and Recreation mission to develop a multi-use regional park.  Only one single proposal was received.

 

Is the legislation subject to public hearing requirements?  No

 

Other Issues: None

 

List attachments to the fiscal note below:

Attachment A:  Contract Summary Form

 

Seattle Department of Parks and Recreation

 

CONTRACT SUMMARY

 

 

Date:  April 28, 2011

 

Name of Contracting Party/ Lessee/ Concessionaire/Other:  Building 11 LLC Investors, now Building 11 Investors, LLC (Bldg 11 LLC)

 

Contract Type:  Lease

 

Non-Profit  __  or  For Profit__X____

 

New or  Renewal (or extension of existing Lease)  Amended and Restated Lease

 

Term  of Original Lease:  30 years + 3 five year extensions

 

Amended Term: 40 years + 5 year extension

 

Purpose of Amended and Restated Lease:  To make mutually agreed upon changes to the original lease ensuring the renovation of Building 11 moves forward.

 

Public Benefit:  Once the renovation is completed at minimal cost to the City, and a Certificate of Occupancy is issued, the City will own a building that meets both the City’s energy and building codes and the federal Secretary of Interior’s standards for historic buildings.  The building will require a specified amount of rentable space leased to park and recreation uses, water related use and artist studios.  The uses in the building will bring a new vibrancy to the North Shore Recreation Area part of Magnuson Park.  The building will provide new restrooms and a new outdoor eating area available for public use.  A new playground will be available for public use when the daycare is not in operation (evenings and weekends.)

 

Brief description, overview, history, general terms and other pertinent info:

 

In late 2008, the City Council authorized the City to enter into a lease agreement with Building 11 Investors LLC to renovate, then manage and maintain Building 11 in Magnuson Park.  The lease became effective February 24, 2009.  Parks and Building 11 Investors LLC have negotiated certain changes and alterations to the lease.  The lease amendment guarantees at least 5,000 square feet of artist studio space for the life of the term, and guarantees at least 16,890 square feet of primary park and recreation uses for the life of the term, of which at least 5,000 square feet must be water related.  Also, at the request of some of the future tenants in the building, the lease requires the City to assume some of the existing leases through Non-Disturbance Agreements in the event that Building 11 Investors LLC defaults.  Additionally the initial term is extended, but the sum of the initial terms and extensions remain the same.  The change in term allows Bldg 11 Investors LLC to apply for federal Historic Tax Credits and gives the City at least an additional $1 million in rent over the life of the term.  The amendment also adds two play areas and a deck area to the Premises, which will be non-exclusive, and which are regulatory requirements for a day care center.

 

 

Attachment B:   Fiscal summary

 

Attachment B

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

REVENUES

Gross Rent

$235,120

$240,998

$247,023

$253,199

$259,528

$266,017

$272,667

$279,484

$286,471

$293,633

Additional Rent

$39,908

$53,906

$62,120

$63,362

$64,630

$65,922

$67,241

$68,585

$69,957

$71,356

Total Rent

$275,028

$294,904

$309,143

$316,561

$324,158

$331,939

$339,908

$348,069

$356,428

$364,989

Cap Rent Offset

-$206,271

-$221,178

-$231,857

-$237,421

-$243,119

-$222,399

-$227,738

-$233,206

-$238,807

-$244,543

PB Rent Offset

-$63,256

-$67,828

-$71,103

-$72,809

-$74,556

-$76,346

-$78,179

-$80,056

-$81,978

-$83,947

Net Rent

$5,501

$5,898

$6,183

$6,331

$6,483

$33,194

$33,991

$34,807

$35,643

$36,499

Capital Account

$9,193,729

$8,972,551

$8,740,694

$8,503,273

$8,260,155

$8,037,756

$7,810,017

$7,576,811

$7,338,004

$7,093,461

$9,400,000

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

REVENUES

Gross Rent

$300,973

$308,498

$316,210

$324,116

$332,218

$340,524

$349,037

$357,763

$366,707

$375,875

Additional Rent

$72,783

$74,239

$75,724

$77,238

$78,783

$66,066

$67,387

$68,735

$70,110

$71,512

Total Rent

$373,757

$382,737

$391,934

$401,354

$411,002

$406,590

$416,424

$426,498

$436,817

$447,387

Cap Rent Offset

-$250,417

-$256,434

-$262,596

-$268,907

-$275,371

-$272,415

-$279,004

-$285,754

-$292,667

-$299,749

PB Rent Offset

-$85,964

-$88,030

-$90,145

-$92,311

-$94,530

-$93,516

-$95,778

-$98,095

-$100,468

-$102,899

Net Rent

$37,376

$38,274

$39,193

$40,135

$41,100

$40,659

$41,642

$42,650

$43,682

$44,739

Capital Account

$6,843,044

$6,586,611

$6,324,015

$6,055,108

$5,779,736

$5,507,321

$5,228,317

$4,942,563

$4,649,896

$4,350,147

2032

2033

2034

2035

Year 21

Year 22

Year 23

Year 24

REVENUES

Gross Rent

$385,271

$394,903

$404,776

$414,895

Additional Rent

$72,942

$74,401

$75,889

$77,407

Total Rent

$458,214

$469,304

$480,665

$492,302

Cap Rent Offset

-$307,003

-$314,434

-$322,046

-$329,842

PB Rent Offset

-$105,389

-$107,940

-$110,553

-$113,229

Net Rent

$45,821

$46,930

$48,066

$49,230

Capital Account

$4,043,144

$3,728,710

$3,406,664

$3,076,822

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

Year 25

Year 26

Year 27

Year 28

Year 29

Year 30

Year 31

Year 32

Year 33

Year 34

No Historic Offset

REVENUES

Gross Rent

$425,268

$435,899

$446,797

$457,967

$469,416

$481,151

$493,180

$505,510

$518,147

$531,101

Additional Rent

$78,955

$80,534

$82,145

$83,788

$85,463

$87,173

$88,916

$90,695

$92,508

$94,359

Total Rent

$504,223

$516,433

$528,942

$541,754

$554,879

$568,324

$582,096

$596,204

$610,656

$625,460

Cap Rent Offset

-$337,829

-$346,010

-$354,391

-$362,975

-$371,769

-$380,777

-$390,005

-$399,457

-$133,608

$0

PB Rent Offset

-$115,971

-$118,780

-$121,657

-$124,604

-$127,622

-$130,715

-$130,081

-$133,230

-$136,457

-$139,762

Net Rent

$50,422

$51,643

$52,894

$54,175

$55,488

$56,832

$62,011

$63,517

$340,591

$485,698

$1,273,272

Capital Account

$2,738,993

$2,392,982

$2,038,591

$1,675,616

$1,303,847

$923,070

$533,065

$133,608

$0

$0

$1,500,000 Hist Offset

REVENUES

Gross Rent

$425,268

$435,899

$446,797

$457,967

$469,416

$481,151

$493,180

$505,510

$518,147

$531,101

Additional Rent

$78,955

$80,534

$82,145

$83,788

$85,463

$87,173

$88,916

$90,695

$92,508

$94,359

Total Rent

$504,223

$516,433

$528,942

$541,754

$554,879

$568,324

$582,096

$596,204

$610,656

$625,460

Cap Rent Offset

-$328,280

-$346,010

-$354,391

-$362,975

-$371,769

-$178,847

$0

$0

$0

$0

PB Rent Offset

-$112,693

-$115,420

-$118,212

-$121,073

-$124,004

-$127,006

-$130,081

-$133,230

-$136,457

-$139,762

Net Rent

$63,250

$55,003

$56,338

$57,706

$59,106

$262,472

$452,016

$462,974

$474,199

$485,698

$2,428,762

delta

$1,155,489

Capital Account

$1,613,993

$1,267,982

$913,591

$550,616

$178,847

$0

$0

$0

$0

$0

$1,800,000 Hist Offset

REVENUES

Gross Rent

$425,268

$435,899

$446,797

$457,967

$469,416

$481,151

$493,180

$505,510

$518,147

$531,101

Additional Rent

$78,955

$80,534

$82,145

$83,788

$85,463

$87,173

$88,916

$90,695

$92,508

$94,359

Total Rent

$504,223

$516,433

$528,942

$541,754

$554,879

$568,324

$582,096

$596,204

$610,656

$625,460

Cap Rent Offset

-$328,280

-$346,010

-$354,391

-$362,975

-$325,616

$0

$0

$0

$0

$0

PB Rent Offset

-$112,693

-$115,420

-$118,212

-$121,073

-$124,004

-$127,006

-$130,081

-$133,230

-$136,457

-$139,762

Net Rent

$63,250

$55,003

$56,338

$57,706

$105,260

$441,318

$452,016

$462,974

$474,199

$485,698

$2,653,762

delta

$1,380,489

Capital Account

$1,388,993

$1,042,982

$688,591

$325,616

$0

$0

$0

$0

$0

$0

2046

2047

2048

2049

2050

2051

2052

2053

2054

2055

2056

Year 35

Year 36

Year 37

Year 38

Year 39

Year 40

Year 41

Year 42

Year 43

Year 44

Year 45

REVENUES

Gross Rent

$544,379

$557,988

$571,938

$586,236

$600,892

$615,914

$631,312

$647,095

$663,272

$679,854

$696,851

Additional Rent

$96,246

$98,171

$100,134

$102,137

$104,179

$106,263

$108,388

$110,556

$112,767

$115,023

$117,323

Total Rent

$640,624

$656,159

$672,072

$688,373

$705,072

$722,177

$739,701

$757,651

$776,040

$794,877

$814,174

Cap Rent Offset

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

PB Rent Offset

-$143,147

-$146,615

-$150,168

-$153,807

-$157,535

-$161,353

-$165,265

-$169,272

-$173,376

-$177,581

-$181,888

Net Rent

$497,477

$509,543

$521,904

$534,566

$547,537

$560,824

$574,436

$588,379

$602,663

$617,296

$632,285

Capital Account

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Assumptions:

Initial Capital Improvement Account:

$9,400,000

Rent Escalation, city lease:

2.5%

Rent Escalation, retail leases:

2.0%

Rent Escalation, office leases:

3.0%

Cap improv Offset:

67.0%

PB Offset:

23.0%

Initial Cap Improv Offset:

75.0%